If excess liquidity has caused these investments that are now going bad, how does the Fed increasing liquidity with lower interest rates help the economy?

Question/Comment: If excess liquidity has caused these investments that are now going bad, how does the Fed increasing liquidity with lower interest rates help the economy?

Paul Solman: Because it prevents the system from freezing up entirely. It’s a calculated risk. But what’s the alternative? A credit crunch that cripples the economy, combined with a crash that lowers everyone’s net worth?